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My comments in response are in CAPs below/in blue. </div>
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First, thanks, Sam L [so that I am distinguishing from Sam/ICANN]</div>
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your comments are very welcomed/ thank you for taking the time to share your perspective. </div>
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<div id="divRplyFwdMsg" dir="ltr"><font face="Calibri, sans-serif" color="#000000" style="font-size:11pt"><b>From:</b> Sam Lanfranco <sam@lanfranco.net><br>
<b>Sent:</b> Monday, July 29, 2019 7:09 PM<br>
<b>To:</b> Vanda Scartezini <vanda@scartezini.org>; Becky Burr <BBurr@hwglaw.com>; Alan Greenberg <alan.greenberg@mcgill.ca>; Aikman-Scalese, Anne <AAikman@lrrc.com>; Marilyn Cade <marilynscade@hotmail.com>; Elliot Noss <enoss@tucows.com><br>
<b>Cc:</b> ccwg-auctionproceeds@icann.org <ccwg-auctionproceeds@icann.org><br>
<b>Subject:</b> Re: [Ccwg-auctionproceeds] Judith Hellerstein's comments on the Auction Proceeds Draft</font>
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<p><font size="-1" face="Courier New">I would like to pick up on what Anne E. Aikman-Scalese wrote: To wit:
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<span style="">“<i>If the CCWG has already examined the Trust mechanism in the context of Option A, I apologize for bring this up.<span style="">
</span>It’s just completely unrealistic to think that you can establish the required independence by setting up a department within ICANN where employees responsible for grant-making are hired and fired by ICANN staff and/or Board</i>.”</span></p>
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<span style="">The future for new auction revenues is highly uncertain. From an economist’s perspective, I would not be surprised to find that ICANN has reached seriously diminishing marginal returns from additional auctions, whenever the applicants elect not
to hold private auctions. In addition to the auctions balance being unlikely to grow, ICANN’s own evolving financial situation means that the existing balance is not immune to appropriation for other ICANN needs, no matter what the intentions are today.</span></p>
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<span style="color: rgb(12, 100, 192);">MSC: IN RESPONSE TO ANNE, NO, WE DIDN'T DO NEARLY ENOUGH WORK ON FOR INSTANCE EXAMINING A TRUST MECHANISM, JUST AS WE DIDN'T FULLY EXAMINE THE TRUE COSTS OF ANY OF THE MECHANISMS, INCLUDING EXIT COSTS. THESE WERE RAISED
BUT NOT DEVELOPED, SO WE HAVE ONLY HALF THE WORK THAT SHOULD BE DONE, STILL.</span></p>
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<span style="color: rgb(12, 100, 192);">YES, I AGREE THAT A SPECIALLY ESTABLISHED TRUST MECHANISM, WITH A TRULY INDEPENDENT BOARD -- FULLY SEPARATE FROM THE ICANN Board -- WHICH HAS FIDUCIARY ACCOUNTABILITY TO ICANN MIGHT BE A WAY TO MAKE MECHANISM A MORE INDEPENDENT
-- BUT THAT THEN SOUNDS MORE LIKE MECHANISM C. </span></p>
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<span style="">From the beginning of this discussion the implicit understanding was that the funds would be released in tranches (slices). Various “tranche models” were bandied about. For the moment the endowment preserving strategy of only allocating interest
earned is essentially a dead option, given near zero and negative interest rates, the funding flow would be minimal. Other portfolio approaches may combine potentially higher yields, but also quite likely with higher risks.
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<span style="">MSC: NOT SURE WHY THIS HAS HIGHER RISKS, SAM.JUST ASKING. ALLOCATING PERHAPS 15-20 % OF FUNDS IN YEAR ONE WITH ASSESSMENT AT END OF YEAR; AND THEN ALLOCATING A % EACH YEAR UNTIL THE FUNDS ARE EXPENDED... </span></p>
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<span style="">I THINK YOUR ANALYSIS OF WHETHER AUCTION FUNDS ARE AN EXTRAORDINARY REVENUE OPPORTUNITY FOR ICANN IS INTERESTING. </span></p>
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<span style="">MY OWN VIEW IS THAT ICANN SHOULD LIVE WITHIN WHATEVER THE FEES FROM REGISTRARS AND REGISTRIES PROVIDE, COLLECTED FROM THE REGISTRANTS, AND PASSED THROUGH TO ICANN. OTHERWISE, WE RUN THE STRONG RISK THAT ICANN Board AND ICANN Org ARE MOTIVATED
TO INFLUENCE RELEASE OF NEW GTLDS, OR CREATE OTHER MECHANISMS TO INCREASE ICANN BUDGET. </span></p>
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<span style="">These considerations lead me to believe that the auction revenues are essentially a one-time windfall, to be husbanded wisely by ICANN, with direction from the ICANN stakeholder community, and possibly used to exhaustion over some agreed upon
finite time horizon. Should I be wrong, and we find that there are significant additional auction proceeds, we should consider placing them in reserve, with our decisions here to be revisited in terms of lesson learned from the handling of the first auctions
balance. These are issues to be discussed among the stakeholder community. </span>
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<span style="">Lastly, in addition to the issue of required independence and Option A, there is the challenge of amassing the appropriate expertise to properly and efficiently administer the granting process within a unit of ICANN itself. One has to weigh those
costs against Option C, where for a management fee the administrative process is transferred to a competent entity.
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<font color="#0c64c0">IT IS MY VIEW [AND I THINK THAT OF THE CSG PARTICIPANTS] THAT EXPERTISE CAN BE HIRED, BUT THAT TO PLACE IT WITHIN ICANN Org CREATES UNDUE CHALLENGES, INCLUDING PAYING MUCH HIGHER SALARIES, EXIT COSTS, ETC, AS WELL AS ICANN OVERHEAD, AND
ALSO CREATES INCREASED INFLUENCE FROM WITHIN ICANN Org, ICANN Board, AND FRANKLY, ALSO ICANN COMMUNITY. WE ALSO UNDERSTAND THAT EXIT COSTS FOR AN INTERNAL HOUSED MECHANISM A WILL BE MUCH MORE CHALLENGING, INCLUDING SUBJECT TO INTERNAL LOBBYING BY STAFF AND
BOARD INTERACTIONS RE THEIR PREFERENCES EVEN THOUGH INDEPENDENCE IS SUPPOSED TO BE THE NAME OF THE GAME AND EVEN BY THE COMMUNITY ITSELF, AS WELL, HUMAN NATURE IS HUMAN NATURE. SO FAR, THE CSG COMMENTS HAVE SUPPORTED AN INDEPENDENT MECHANISM, WITH EXPERTISE
FROM THE RELEVANT GRANTING COMMUNITY, WITH A SEPARATE BOARD, AND A LIGHT ADVISORY COMMITTEE FROM THE COMMUNITY TO ADVISE, NOT REVIEW GRANTS, NOT OVERSEE GRANTS, BUT ADVISE LIGHTLY. PERHAPS UP TO TWO BOARD MEMBERS OF ICANN <span style="caret-color: rgb(12, 100, 192);">Board</span> CAN
BE EXOFFICIO. INDEPENDENT LEGAL COUNSEL SHOULD BE ASSUMED, AND INDEPENDENT COMMUNICATIONS AND GRANT MAKING STAFF. </font></p>
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<font color="#0c64c0"><span style="caret-color: rgb(12, 100, 192);">I SAW A COMMENT THAT INDEPENDENT LEGAL REVIEW WOULD BE INFORMATIVE, AND I SUGGEST THAT AS WELL FOR A CONSULTATION WITH THE US IRS OR US JUSTICE DEPARTMENT REGARDING ENSURING </span></font></p>
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<span style="color: rgb(12, 100, 192);">FULL INDEPENDENCE OF ANY GRANT MAKING MECHANISM. WE WOULD NOT WANT TO PUT ICANN'S UNIQUE STATUS AT RISK IN ANY WAY. </span></p>
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<span style="">The terms of reference for grant eligibility would be set through an ICANN policy development process.
</span><span style="color: rgb(12, 100, 192);">[MSC: NOT SURE THAT THIS IS IN ANY WAY PRACTICAL. NOR DOES THE COMMUNITY, LARGELY, HAVE SUCH EXPERTISE. AND WE HAVE TO ACCEPT THAT THE COMMUNITY LARGELY HAS PERSONAL INTEREST IN WHAT IS FUNDED BASED ON THEIR OWN
UNDERSTANDING OF ICANN. THAT IS NOT A CRITICISM. ONLY A COMMENT. THAT IS WHY THE CCWG CREATED SOME EXAMPLES, BUT ONLY AS EXAMPLES. </span><span style="">That would hold for both Option A and Option B. Assuming that it is the same for Options A and B, the
core questions here are (a) the relevant costs of the administrative process as between A and B, and (b) the reality (and optics)of process independence with in-house ICANN management versus contracted outside process management.
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<span style="">My personal views are that an in-house process will be more expensive, and more fraught with problems, than a process being run by a outside foundation or similar group. ICANN has no expertise in these areas and this is not an area where ICANN
should learn while doing. </span></p>
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<span style="color: rgb(12, 100, 192);">MSC: TO DATE, THE CSG COMMENTS HAVE BEEN LARGELY SIMILAR/SUPPORTIVE OF YOUR STATEMENT, SAM L. WE HAVE SUGGESTED OUR PREFERENCE FOR MECHANISM C, BUT ACCEPT THAT BOTH MECHANISM A AND C MUST BE FURTHER DEVELOPED. </span></p>
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<span style="color: rgb(12, 100, 192);">WE PREFER FOR THE BOARD NOT TO PREEMPT THE COMMUNITY PROCESS, HOWEVER, LONG IT TAKES US TO ACHIEVE MORE DEVELOPED RECOMMENDATIONS. </span></p>
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<span style="color: rgb(12, 100, 192);"></span><span style="color: rgb(0, 36, 81);">Sam Lanfranco, NP</span><span style="color: rgb(0, 36, 81);">OC</span></p>
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